Federal Judge Orders Distribution Of Reserve Primary Fund's Assets To Shareholders

11/26/2009 3:35 AM ET

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(RTTNews) - A federal judge for the U.S District Court for the Southern District Of New York Wednesday adopted a distribution plan similar to the Securities and Exchange Commission or SEC's proposed distribution plan in the Reserve Primary Fund case and ordered to pay out its remaining assets to shareholders, which will enable all investors to get back their money quickly.

SEC Chairman Mary Schapiro said in a statement, "We are pleased with the court's order adopting the SEC's distribution plan in the Reserve Primary Fund case. From the start, our goal was to return money to investors as quickly and fairly as possible and to avoid the extended quagmire of litigation that would have only served to deplete the finite pool of money used to pay investors."

"Without this distribution plan, shareholders would have been racing to obtain judgments against the finite pool of funds, possibly leading to conflicting judgments by different courts and tapping into a $3.5 billion pot that had been set aside by the Fund to cover litigation costs," added Schapiro.

The court order says that the remaining assets of the Primary Fund shall be liquidated and distributed on a pro-rata basis to all Primary Fund shareholders who have not received $1 per share owned on or after September 15, 2008. The fund has about $3.5 billion left. Further, the judge said $83.5 million shall be set aside initially from the total assets of the Primary Fund and shall not be distributed until further court order.

According to SEC, it is estimated that the investors would get 99 cents on the dollar, or more.

SEC had proposed a pro-rata distribution plan, which will provide an equal payout to all shareholders who have not fulfilled their redemption requests, without considering when they had submitted those requests.

SEC noted that on September 15, 2008, the Reserve Primary Fund, which held $785 million in Lehman-issued securities, became illiquid when the fund was unable to meet investor requests for redemption. The Reserve Fund had declared the next day that it had "broken the buck" saying its net asset value had fallen below $1 per share.